Vecon Lab Guessing Game Experiment: Introduction

This program sets up a game in which each person is given a chance to guess a number on a specified range, e.g. from 0 to 100, and a prize is awarded to the person whose guess is closest to a pre-announced fraction of the average. The game, first investigated by Nagel (AER, 1995), was inspried by a newspaper beauty contest that Keynes used to motivate a discussion of investor herding behavior. The guessing game has fascinated economists because the Nash equilibrium is to guess the lowest point in the range, but the winning guess is typically not near that point in initial plays of the game.

The Veconlab setup allows for a target that is a linear function of the average, with a non-zero intercept, which can move the Nash equilibrium to the interior of the range of possible guesses. The results of this game provide insight into what people expect others to do, and perhaps into what they think others think they will do, etc.

Vecon Lab - February 25, 2024